March 2, 2021

Off The Shelf: Inside the Greek Volcano

It was against this backdrop that I read “Greece’s ‘Odious’ Debt: The Looting of the Hellenic Republic by the Euro, the Political Elite and the Investment Community” (Anthem Press, $29.95) by Jason Manolopoulos.

The author, who is also a founder of an emerging-market hedge fund, sets out to analyze the Greek fiscal crisis and its larger reverberations. “Not a single constituency emerges well from this story,” he writes. “Greek politicians, Greek society, trade unions, leaders of the European Union, the I.M.F., the world’s investment banks — each and every one has scarcely put a foot right in a collective display of hubris, miscalculation, overambition, deception, mis-selling, folly and, in some cases, sheer greed in a saga that has continued for decades.”

If this sounds overly alarmist or polemical, think again: Mr. Manolopoulos backs up his analysis with cool, detached facts. He focuses on Greece’s largely unreformed economy, which is characterized by widespread corruption, business structures run by elites, low levels of investment in new technologies and industry clusters, and dependence on just a few sectors — like tourism, shipping and agriculture.

The book argues that forms of corruption have played a pivotal role in the development of Greece’s inefficient, uncompetitive economy. In particular, the author blames “clientelism” — “interest groups within society requesting favors from politicians as clients, often with little regard to a reciprocal contribution to the economy.”

For example, he says, a bloated public sector has led to lifetime positions that can become bargaining chips for politicians and constituents. This has led to pay raises without links to productivity, to a collective sense of entitlement and to huge pension obligations. It is small wonder that Greece’s 2010 austerity measures, aimed at retirement reform, produced so much unrest.

In a book rife with supporting data, the most memorable statistics are those related to corruption, both in and outside government, as well as to Greece’s retirement provisions. Consider that before last year’s reforms, the official retirement age in Greece was 58, versus an average of 63.2 in other countries in the Organization for Economic Cooperation and Development. And the average Greek pension paid almost 96 percent of average annual lifetime earnings; versus 61 percent in other O.E.C.D. nations.

Huge pension liabilities, along with tax evasion, an expanding government, large military expenditures, growing trade deficits, an $11 billion price for the 2004 Olympics, and an anemic real economy — combined to increase Greece’s indebtedness, the book argues.

In 1990, government debt amounted to 71 percent of Greek gross domestic product; by 2009, the figure was 115 percent. Until 2007, the availability of global credit, along with misplaced global confidence in the economy’s soundness, helped stoke the fires of the debt. These factors also helped Greece put off meaningful economic and fiscal changes aimed at producing “the sustainable kind of growth that is built on business development, rather than ‘growth’ that turns out to be a debt-fueled consumer binge.”

How could governing elites in Athens, Brussels and New York have gotten the fundamentals of Greece’s situation so wrong for so long? The answers help us understand both the Greek disaster and the broader 2008 financial crisis.

For one, political and business actors relied on inadequate measurements, Mr. Manolopoulos writes. Most obvious was the importance placed on G.D.P. as an indicator of national well-being. G.D.P. gauges a country’s economic activity, not its wealth. Borrowing to consume perishables that don’t raise the level of productive assets, he notes, raises G.D.P. in the short run and creates an illusion of positive economic performance.

A second and more chilling explanation of why elites proved so incompetent at governing the Greek economy — as well as the larger, global one — is related to what Mr. Manolopoulos calls the “Washington consensus,” a faith in deregulation, free trade, mobile capital flows and fiscal responsibility that he considers elitist.

Two elements of this consensus — market deregulation and the liberalization of capital flows — helped create enormous pools of global credit, making it “easier for short-termist governments to abandon the principle of fiscal responsibility,” since spending not financed through tax hikes could be financed by foreign loans, he says.

Last but not least, all this free-flowing capital has prompted bubbles — in housing, finance and other areas — that add volatility to national economies and impose harsh costs, particularly on the poor and middle classes.

This is a brave, complicated and timely book. It would have been even stronger with more attention to how Greece, the United States and the larger global economy could now start avoiding the mistakes made over the last 20 years.

I turned the last page struck by two questions, both of which flow from the book’s wide-ranging analysis: Where are the leaders who will make brave decisions, based on their citizens’ long-term interest? And who among us will light the way to changing our own behavior — changes that will help us reset our economies and move ahead with a collective purpose? In this summer of fiscal volatility and political gamesmanship, we can’t find answers soon enough.

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